How to plug leaks in your spending and investment budget

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Do you find that you are left with no money at the end of the month? Is this happening despite you drawing up a budget? Then, there could be spending and investment leaks in your budget. What could these be? Some of the most common ones are listed below.

Improper categories

The most common mistake that everyone makes is not creating proper categories in their budget. This way, they end up categorising a number of expenses as miscellaneous. So, this category starts burgeoning by the end of the month. To avoid this, you must create proper categories in your monthly budget. For example, drinking should come under indulgences and you must make shopping a separate category so that you don’t overspend on unwanted things. Making proper categories will help you find out where exactly your money is going.

Over-usage of credit card

Many of us use a credit card for our purchases. We keep swiping the card and don’t account for a card purchase. This means that your budget looks nice but you have debt on your Credit Card. Even if one pays their bills on time, they tend to put credit card as a category. This means you don’t know where the money went. The best way will be to put the expenses under the right category even if you use a Credit Card. If you have too much of Credit Card outstanding, you can even out it under the loans category so that you have a feeling that you have some debt on your hands.

No Investment?

Do you have a category called ‘investment’ in your budget? No? Then, that might be the reason why your budget is all wrong. When you forget to make such a category, you tend to forget to invest too. Most of your money might be lying in your savings account. Your savings will grow only when you invest them. You can also get income from your savings. A savings account can earn you only 4% while mutual funds can give you returns as much as 15%. Start by making provisions for investments every month. You can even set up auto debit in your savings account for making the investments. This way, you will never forget.

Not accounting for taxes

A number of people do not account for taxes while making their budget. They tend to spend throughout the year and then look to make tax-saving investments at the last minute. Many don’t have the money and hence have to ensure huge tax outgo at the start of the year. Some go a step further and take loans to make tax-saving investments, which is totally the wrong thing to do. You must make your tax savings a part of your budget at the start of every financial year. Plan your taxes early. You can even ensure that you spread the investments across months so that you don’t have to put in a lump sum. This is possible for investments such as Public Provident Fund and mutual funds.

It is easy to fix leaks in your budget as long as you know where you have gone wrong. Sit down and spend some time assessing your budget. Compare it with other budgets, if possible. You can take best practices from your friends, neighbours and family members. It’s your money after all, and planning it well helps you in achieving your financial objectives.